When a project manager start to estimate there are two concepts that may show up. The Reserve Analysis and the Contingency Reserve. We have recently received a question asking the differences between them.
The two terms are related and the best way to see the Contingence Reserve is as a part of the Reserve Analysis .
Let say you are in the Estimate Activity Duration Process and you have more than 200 activities. How close do you think you can get to the real Duration for all those activities?
That will depend on your experience, on the historical data your company has recorded, on your employs experience and commitment, on the methods you are using for estimating and others.
It doesn't matter how good you are in estimating, you would rarely estimate the exact time you will need at the end and that is when the Risk Appear.
You would ask your self questions like:
How much time I invested in estimation?
How close I think I could be?
What if the estimation is not accurate?
Once you have done all the estimations, somehow you need to be cover and prepare if your estimation were not accurate and there is when the Contingency Reserve appears.
Your contingency reserve for the Duration Estimation can be defined in : days, percentage, monetary value and others.
That contingency reserve will act like a buffer that will cover you in case your estimation were not accurate.
That Contingency Reserve will determined in the Risk Area and can be calculated by several methods but at the end that Contingency Reserve will be part of your Reserve Analysis and you will add that buffer to your estimations and by doing that you can count that even some extraordinary factor arrives your project will not go out from the plan.
Conclusion: the Contingency Reserve decrease the risk. The less risk you want , the higher that Contingency Reserve , and the higher the Reserve Analysis, therefore your Activity Duration Estimation will be longer at the end.
You will find the Reserve Analysis in the following process ( PMBOK 5th edition)